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Here's Why Avery Dennison (AVY) Stock is a Solid Pick Now

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Avery Dennison Corporation (AVY - Free Report) looks promising at the moment, aided by heightening demand for essential categories amid the coronavirus pandemic. The company’s focus on growing its high-value categories led by specialty labels, expected benefits from productivity initiatives, as well as restructuring and cost-control actions, are expected to drive its performance in the days to come.

The stock has gained 15.7% over the past year, against the industry’s decline of 5.6%.



The company currently carries a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let's delve deeper into the factors that make the Avery Dennison stock a compelling investment option at the moment.

Earnings Surprise History

The company has a trailing four-quarter average earnings surprise of 12.8%.

Return on Equity (ROE)

Avery Dennison’s trailing 12-month ROE of 45% reinforces its growth potential. The company’s ROE is higher than the industry’s ROE of 12%, highlighting its efficiency in utilizing shareholder funds.

Upbeat Estimate Revision Activity

The Zacks Consensus Estimate for the company’s fourth-quarter and 2020 earnings moved 21.7% and 12.7% north, respectively, over the past 60 days.

Positive Growth Projections

The Zacks Consensus Estimate for the ongoing year’s earnings per share is currently pegged at $6.91, indicating a growth of 4.7% from the prior year. The same for 2021 is pinned at $7.35, suggesting a year-over-year improvement of 6.3%.

The stock has an estimated long-term earnings growth rate of 6.7%.

Other Growth Drivers

Around 40% of the company’s revenues are generated from labelling of non-durable consumer goods like food, beverage, home and personal care products. Demand for these products has been high amid the pandemic. Also, around 15% of the company’s revenues is tied to logistics and shipping, which will be aided by increase in e-commerce activities.

The company’s Label and Packaging Materials segment is well poised for growth, supported by the pandemic-driven demand for essential products. Contributions from productivity initiatives will also stoke top-line growth.

The company will benefit from its rapidly growing high-value product categories, such as specialty labels and Radio-frequency identification (RFID). Continued strength in RFID and external embellishments will boost the Retail Branding and Information Solutions (RBIS) segment.

Moreover, Avery Dennison continues to increase investments to fuel growth, both organically and through acquisitions with higher spending for business development and R&D. In line with this, the company acquired Smartrac’s Transponder (RFID Inlay) Division. The deal will generate higher revenues, with RFID business anticipated to grow 15-20% annually over the long term.

Along with its strategic restructuring efforts, Avery Dennison has undertaken temporary cost-containment actions to negate the impact of waning demand in some of the company’s businesses due to the pandemic. The company anticipates incremental savings from restructuring actions, net of transition costs, between $60 million and $70 million in 2020. For 2021, it projects carryover savings (net of transition costs) of approximately $70 million.

Other Stocks to Consider

Other top-ranked stocks in the Industrial Products sector include iRobot Corporation (IRBT - Free Report) , Deere & Company (DE - Free Report) and Silgan Holdings Inc. (SLGN - Free Report) . While iRobot and Deere flaunt a Zacks Rank #1, Silgan carries a Zacks Rank of 2, at present.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. Shares of the company have appreciated 57.3% in the past year.

Deere has an expected earnings growth rate of 46% for fiscal 2021. The stock has gained 51.3% over the past year.

Silgan has a projected earnings growth rate of 37.9% for the current year. Over the past year, the company’s shares have gained 19.1%.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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